Why Manufacture in Mexico?
Almost 25 years ago, Mexico began its journey towards greater economic openness with a strong focus on
international trade liberalization and attracting investment.
Along the way, significant changes were made to the Foreign Investment Law and free trade agreements
signed with the world's leading economies. The country also achieved a solid and stable macroeconomic
environment that has brought certainty to companies' investment decisions.
Today, Mexico has an attractive business environment, legal certainty, the world's largest network of free trade
agreements, widely developed economic sectors and an extremely competitive cost profile. It is also
progressing in terms of infrastructure to make it a world-class logistics platform.
This document provides an overview of Mexico's strengths and advantages that make it an excellent
alternative to supply end products and inputs to the European and US markets, particularly in respect to China.
 COMPETITIVE LABOR COSTS
Mexico offers significant savings in labor costs, even when compared to China. Graphs 1 and 2 show its
preeminence in this area.
GRAPH 1 Unit labor costs in selected countries
GRAPH 2 Forecast for unit labor costs 2012-2020
Salaries paid per employee in the year; numbers in thousands of dollars
Index 2012=100, from annual salaries per employee, in dollars, selected countries
SOURCE: Global Insight, May 2013
SOURCE: Global Insight, May 2013
As shown in the graphs, while salaries in Mexico are not lower than in China or India, it does have a clear and
wide comparative advantage in terms of growth.
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 MANUFACTURING COSTS
Mexico has a better manufacturing cost profile than many countries, including Russia, India and China. Graph 3
shows the most updated comparison of manufacturing costs between Mexico and the US in 2010, published by
Alix Partners.
GRAPH 3 Index of manufacturing costs compared to the US 2010
US value=100%, selected countries
120%
110%
100%
90%
80%
70%
60%
EUA
Vietnam
China
Rusia
México
Rumania
India
FUENTE: Alix Partners 2011
Furthermore, consulting firms such as Boston Consulting Group, AT Kearney, Alix Partners and KPMG have
recognized Mexico's advantages for production investment.
 FACILITY OF OPERATION
The procedures and time required to open or close a business, or to obtain a construction permit, are critical to
success in international business.
In Mexico, investors require only 6 procedures and 9 days to open a business, and 10 procedures and 69 days
to obtain a construction permit. These numbers are noticeably lower than Brazil, India or China, as shown in
figure 1.
Moreover, only 1.8 years are required on average to close a business in Mexico, and the recovery rate for
creditors and shareholders is 67.3%, significantly better than countries such as India, Russia and Brazil, among
others, as shown in figure 2.
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FIGURE 1 Comparison of days and procedures required to open a business in 2012
Selected countries
Países seleccionados
SOURCE: World Bank Doing Business 2013
FIGURE 2 Comparison to close a business in 2012
Selected countries
SOURCE: World Bank Doing Business 2013
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 OPERATION COSTS
There are several factors that affect operation costs and, therefore, company profitability, such as taxes paid
on profits, the number of tax payments (which affects administrative costs) and insolvency proceedings costs.
Figure 3 shows Mexico's advantages over other countries in these areas.
FIGURE 3 Comparison of operation costs in 2012
Selected countries
SOURCE: World Bank Doing Business 2013
As the table shows, operations in Mexico lead to significant tax savings compared to economies such as China,
India and the United States.
In terms of number of tax payments, Mexico requires only six payments per year, which is much more
favorable than the average in Latin America and OECD countries.
While it may appear that Mexico is at a disadvantage compared to countries such as Brazil and Canada in terms
of insolvency costs, it is important to note that according to Global Insight, in 2012 labor costs in Mexico were
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30% lower than Brazil and 87% below Canada. Because of this, severance payments in Mexico - essential to
closing a business - are lower than in many countries included in the comparison.
 ACCESSIBILITY TO LARGE MARKETS
FREE TRADE AGREEMENT NETWORK
Mexico has 12 free trade agreements (FTA) with 44 countries, making it one of the most open countries to
international trade, with preferential access to more than 1.2 billion potential consumers and up to 60% of the
world's GDP. Graph 4 shows how Mexico is clearly above China in this area.1

GRAPH 4
Free trade agreements signed by Mexico and China, 2012
SOURCE: Ministry of Trade of China and Ministry of Economy of Mexico
In addition, the average tariff rate in Mexico in 2012 was 4%, which increases the profitability of companies
established in Mexico, because they can access inputs and final products at competitive prices.
TARIFF BENEFITS
Mexico's network of FTAs gives it preferential access to the US and European markets, compared to goods
from other economies, like Brazil, for example. In addition, when using land transportation, Mexican goods
have tariff-free access to the United States, which is a clear advantage over competitors from around the
world.

FOREIGN TRADE OPERATIONS PROCEDURES
On the other hand, exporting and importing procedures in Mexico are few, with only five documents required
to complete an export procedure and four for import procedures. Mexico has an advantage over many
countries in terms of foreign trade procedures, as it is shown in figure 4.

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China has free trade agreements with Pakistan, Chile, New Zealand, Peru, Costa Rica and ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Philippines, Singapore, Thailand and Vietnam)
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FIGURE 4 Comparison of procedures required for foreign trade operations in 2012
Selected countries
SOURCE: World Bank Doing Business 2013
LEGAL CERTAINTY FOR FOREIGN INVESTMENT
Executing Reciprocal Investment Promotion and Protection Agreements (RIPPA) is part of the Mexican
government's engagements to grant Mexican and foreign investors a legal framework that strengthens the
protection of foreign investment in Mexico and Mexican investment abroad.
Generally, RIPPAs cover investment definition, scope, promotion and admission, investment treatment,
expropriation, transfers and Investor-State/State-Investor dispute settlement.
As shown in table 1, Mexico has signed 28 RIPPAs to date, the latest executed with Singapore.

TABLE 1 RIPPAs signed by Mexico
Partner country and date of entry into force
Country
Year
Country
Year
Country
Year
Country
Year
Switzerland
1996
Germany
2001
Cuba
2002
T. and Tobago
2007
Argentina
1998
Austria
2001
Belgium/Luxembourg
2003
Spain
2008
Holland
1999
Sweden
2001
Czech Rep.
2004
India
2008
France
2000
Korea
2002
Panama
2006
Slovakia
2009
Portugal
2000
Italy
2002
Iceland
2006
China
2009
Denmark
2000
Uruguay
2002
Australia
2007
Belarus
2009
Finland
2000
Greece
2002
United Kingdom
2007
Singapore
2011
SOURCE: Ministry of Economy of Mexico
Mexico and Kuwait signed a RIPPA in February 2013; however, the agreement was submitted for review and, if
applicable, approval by the Senate of the Republic and the National Assembly of the State of Kuwait. On the
other hand, a RIPPA between Mexico and Bahrain whose negotiations were completed in 2009 is pending
signature.
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Furthermore, some of Mexico’s free trade agreements include an investment chapter similar to a RIPPA, such
as the agreements signed with the United States, Canada, Chile, Colombia and Japan, among others.
This institutional framework provides legal certainty to companies that decide to establish operations in
Mexico.
 LOW TRANSPORTATION COSTS
Another advantage is Mexico's closeness to the world's main consumer centers, which enables companies to
be more responsive to sudden changes in demand and reduces inventory costs. Table 2 shows the number of
days required to transport a container by sea from China and from Mexico (columns) to important distribution
and consumer centers (rows). The following maps illustrate the distance from these two countries to various
ports around the world.
TABLE 2 Comparison of days’ distance by sea from Mexico and China
Selected departure and arrival ports.
New York
Los Angeles
Hamburg
Cape City
Mexico
6
4
16
22
China
31
17
32
23
SOURCE: Sea Rates
MAP 1 Sea routes to New York from Mexico and China
Selected departure ports. Source: Sea Rates.
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MAP 2 Sea routes to Hamburg, Germany, from Mexico and China
Selected departure ports. Source: Sea Rates.
 INFRASTRUCTURE
Mexico communicates through 27,000 kilometers of railroads and 374,000 kilometers of roads. It has various
domestic distribution terminals that connect to the main sea ports, enabling reduced costs and speedy arrival
and departure of goods.
In brief, Mexico has:
 76 airports (12 domestic and 64 international).
 117 ports: 58 on the Pacific Ocean seaboard and 59 on the Gulf of Mexico and Caribbean seaboard.
 49 customs offices, of which 11 are inland.
 3,152 kilometers of border with the United States and 1,149 kilometers with Guatemala and Belize,
with a total of 63 border crossings.
 MACROECONOMIC STABILITY
According to the World Economic Forum's (WEF) latest report on Global Competitiveness, Mexico ranked 40th
among 144 economies, in terms of Macroeconomic Environment. Figure 5 shows Mexico's strength over other
countries in important macroeconomic variables.
To contribute to the country’s economic stability, several tax measures adopted recently in Mexico reinforce
the sustainability of public finance in the medium term and the government’s ability to continue to support
improvements in the transportation and communications infrastructure.
Mexico's monetary policy has enabled it to reach inflation levels close to our main trade partners. As evidence
of this, in 2012 the country closed with 3.9% inflation, according to INEGI, and the IMD’s most recent
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competitiveness report ranks Mexico as the second country with the lowest cost of living in the world.
Furthermore, WEF's report places Mexico in 38st position out of 144 in terms of credit risk score.
FAVORABLE EXCHANGE PERFORMANCE
In coming years, Mexico will have a better exchange performance in real terms, compared to many of its
competitors in international markets. For example, figure 5 shows a graph of the behavior of the real exchange
rate for Mexican, Russian, Chinese and Brazilian currencies over the US dollar. Of these, Mexico's exchange rate
offered the greatest advantages, generating a relative reduction on goods expressed in dollars.

FIGURE 5 Comparison of macroeconomic stability indicators
Selected countries
SOURCE: IMD World Competitiveness Yearbook 2012; International Monetary Fund 2013
Final Remarks
A large number of factors make Mexico one of the best choices to locate operations. The country will continue
to progress in several areas: infrastructure, legal certainty, deregulation, safety and commercial openness,
among others, to raise the competitive profile of the business environment.
The road travelled and the goals set by the Mexican government and society will make the country an
economic power in the next decades Companies that choose Mexico as their operations center will certainly
exceed their medium- and long-term goals.
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